The Role of agricultural credit in poverty alleviation

Since agriculture is the mainstay of the majority of Rwanda’s population, agricultural growth is crucial for alleviating rural poverty. Agricultural intensification should be accompanied with suitable agricultural credit which farmers can access in order to be able to increase their farm production and productivity. Institutional credit availability is crucial for farmers to realize the full potential of agriculture as a profitable activity. In Rwanda, one of the sub-programmes of the Strategic Programme for Agricultural Transformation (PSTA) under the government’s Economic Development and Poverty Reduction Strategy (EDPRS) is to raise agricultural credit as a percentage of total credit from 3 percent to 15 percent. This is expected to be realised through raising awareness among farmers and financial institutions to encourage the provision of agricultural credit and to develop and provide financial incentives for financial institutions through targeted mechanisms to reduce the risk and price of credit. Traditionally, agricultural credit is a risky business. The seasonal nature of agricultural business ventures is such that there are many factors that can not be controlled by business owners like unexpected variations in rains, severe pest and disease attacks - which all can result in a complete wipe out of a farmer’s crop. However, the modernisation of agriculture implies that such risks are minimised. For example, through irrigation, a high-value vegetable farmer can engage in year round farming ventures. These risks can also be minimised through identification of existing nutrient deficiencies in soils and preparing a pest and disease control regime that involves scouting, and early management of risks. Because of these aforementioned risks, the mainstream banking industry has always avoided lending to farmers because of the unquantifiable level of risk. Besides, it is difficult to provide an agricultural loan to a small subsistence farmer who, given the land and other resources within his reach, is most unlikely to raise his level of production to a productive let alone a profitable level that would justify a credit line. To mitigate this phenomenon a sub-programme of the PSTA called the ‘Promotion of Farmers’ Organisations and Capacity Building of Producers’, targets an increase in the number of professional producer organisations, particularly for women, by escalating the number of agricultural cooperatives from 1,105 to 3,000. Government hopes to achieve this increase by providing training in farming as a business to the cooperatives through training planning and financial-management training and also by implementing and disseminating cooperatives law. By encouraging cooperatives, the government is helping framers to reduce risk of farming by encouraging them to do bulk purchase of inputs and selling of yields, as well as negotiate jointly for credit from financial institutions that are willing to use the wealth of numbers as a form of collateral. In Rwanda, short and medium term credit for farmers could be sourced through the Rwanda Development Bank (BDR) and the Banque Populaire. The World Bank through the Agricultural and Rural Market Development Project aimed to contribute to the revitalization of Rwanda’s agricultural and rural economy by promotion of input use and distribution systems, including farmer access to seasonal credit for modern farm inputs. In India, where agricultural credit is relatively developed, bank credit is available to the farmers in the form of short-term credit for financing crop production programmes and in the form of medium-term/long–term credit for financing capital investment in agriculture and allied activities like land development including purchase of land, minor irrigation, farm mechanization, dairy development, poultry, animal husbandry, fisheries, plantation, and horticulture. Loans are also available for storage, processing and marketing of agricultural produce. A comprehensive credit policy was announced by the Government of India in June 2004, containing measures for doubling agriculture credit flow in the next three years and providing debt relief to farmers affected by natural calamities. If a farmer opts for a highly intensive form of a vegetable growing, he/she could go for a greenhouse or tunnel structure complete with drip irrigation systems, high quality environmental friendly pesticides and fertilizers approved by Eurogap (Europe’s pesticide standard) , and use of high yielding greenhouse varieties plus excellent agronomic support. The farmer would have minimized many risks due to nature and could increase his yields phenomenally. Such agricultural projects can be ably designed, constructed and supported by Balton Rwanda, a specialist in agricultural turn key projects, for farmers in Rwanda. Contact: kelviod@yahoo.com